China

In today’s briefing:

HSCEI Index Rebalance Preview: Zhongsheng (881 HK) Should Go This Time
CIMC Enric (3899 HK): One More Spin-Off Progressing
China’s Tourism Recovery Versus Other Major Tourist Sources in Asia: Delayed, Not Slower
China Consumption Weekly (1 Jan 2024): Tencent, NetEase, Alibaba, JD.com, PDD

HSCEI Index Rebalance Preview: Zhongsheng (881 HK) Should Go This Time

By Brian Freitas

Zhongsheng Group (881 HK) pops up as a potential deletion yet again and a much lower rank raises the probability of deletion to just short of a near certainty.
With BeiGene (6160 HK) failing the Velocity Test for Tradeable Indexes, Zhongsheng Group (881 HK)‘s deletion from the index should result in China Unicom Hong Kong (762 HK)‘s inclusion.
Estimated one-way turnover at the rebalance is 1.47% resulting in a one-way trade of HK$946m. Passives will need to trade over 2.5x ADV on both stocks.

CIMC Enric (3899 HK): One More Spin-Off Progressing

By Osbert Tang, CFA

CIMC Enric Holdings (3899 HK) has applied for its liquid food segment, under CLTP, to be quoted on the NEEQ. Subsequently, it plans to be listed on the BSE.
The move will not only provide an additional funding channel for this business but also enhance the valuations of CIMC Enric. BSE’s IPOs have historically performed very well.
Upon successful listing, the attributable market cap of its two listed subsidiaries will be greater than its current market cap. This means its clean energy business is free.

China’s Tourism Recovery Versus Other Major Tourist Sources in Asia: Delayed, Not Slower

By Daniel Hellberg

China’s outbound tourism recovery started much later than others in the region
In particular, Taiwan & Korea began ramping outbound travel earlier (in Q222)
As destinations, Thailand & Vietnam recovered early, but now lag HK’s growth

China Consumption Weekly (1 Jan 2024): Tencent, NetEase, Alibaba, JD.com, PDD

By Ming Lu

The authorities granted licenses to 105 new domestic games and promised to review the game law draft.
Alibaba is restructuring its main business unit, Taobao-Tmall, to reach flexibility.
Both Alibaba and JD.com changed their refund policies to follow PDD.

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Jan 01

Daily Brief China: Weiqiao Textile Co, Vinda International, Alibaba (ADR), Baidu, NetEase and more

In today’s briefing:

Merger Arb Mondays (01 Jan) – Weiqiao Textile, IRC, IJTT, JSR, Shinko Electric, Hollysys, OreCorp
(Mostly) Asia M&A, Dec 2023: Vinda, Adbri, Perpetual, CPMC, Sigma Health, Shinko Electric
Alibaba Group Holding Limited: Can Their Upgraded AI Model To Challenge Microsoft & Amazon? – Major Drivers
Baidu Inc.: A Game-Changing Strategy That’s Shaping AI’s Future! – Major Drivers
NetEase Inc.: Inside the Strategies Fueling Their Gaming Industry Takeover! – Major Drivers

Merger Arb Mondays (01 Jan) – Weiqiao Textile, IRC, IJTT, JSR, Shinko Electric, Hollysys, OreCorp

By Arun George

We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
Highest spreads – Irc Ltd (1029 HK), Hollysys Automation Technologies (HOLI US), JSR Corp (4185 JP), Shinko Electric Industries (6967 JP), Adbri (ABC AU), Probiotec Ltd (PBP AU).
Lowest spreads – Tietto Minerals Ltd (TIE AU), A2B Australia (A2B AU), T&K Toka Co Ltd (4636 JP), Tokyo Rakutenchi (8842 JP), Pact Group Holdings (PGH AU).

(Mostly) Asia M&A, Dec 2023: Vinda, Adbri, Perpetual, CPMC, Sigma Health, Shinko Electric

For the month of December 2023, 16 new deals (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$10bn.
The average premium for the new deals announced (or first discussed) in December was 44.7%. The average YTD is 39% (117 deals).
This compares to the average premium for all deals in 2022 (106 deals), 2021 (165 deals), 2020 (158 deals), and 2019 (145 deals) of 41%, 33%, 31%, and 31% respectively.

Alibaba Group Holding Limited: Can Their Upgraded AI Model To Challenge Microsoft & Amazon? – Major Drivers

By Baptista Research

Alibaba Group Holding Limited delivered a mixed set of results for the previous quarter, with revenues below the analyst consensus.
For Taobao and Tmall Group, the emphasis lies on user-centric strategies, universal market coverage, multi-tiered consumer engagement, and maintaining price competitiveness.
The Local Services Group concentrates on location-based technology services, with Amap focusing on mobility and Ele.me on-demand services.

Baidu Inc.: A Game-Changing Strategy That’s Shaping AI’s Future! – Major Drivers

By Baptista Research

Baidu managed to exceed analyst expectations in terms of revenue as well as earnings in the most recent quarter sustaining solid revenue, profit, and cash flow.
The strategic reinvention of the product portfolio with ERNIE and ERNIE bot played a pivotal role in achieving these results.
Baidu successfully launched EB4 ahead of expectations, attributing it to a unique end-to-end 4-layer AI infrastructure and valuable user feedback.

NetEase Inc.: Inside the Strategies Fueling Their Gaming Industry Takeover! – Major Drivers

By Baptista Research

NetEase, Inc. delivered a positive result and managed an all-around beat last quarter.
NetEase’s classic legacy titles and newly launched games played a pivotal role in expanding its global footprint.
Looking ahead, NetEase anticipates the launch of Where Winds Meet, a highly anticipated AAA martial arts-themed action-adventure game.

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Dec 31

Daily Brief China: China Mobile, Swire Pacific (A), LONGi Green Energy Technology, Ganfeng Lithium and more

In today’s briefing:

HK Connect SOUTHBOUND Flows (To 29Dec23); CNOOC & Telcos to the BUY Side, Tracker Fund Sold Bigly
Last Week in Event SPACE: Fujitsu General, Swire Pacific, Li Ning, IJJT
Mainland Connect NORTHBOUND Flows (To 29 Dec 23): Renewables Are a BIG NET BUY This Week
A/H Premium Tracker (To 29 Dec 23): STAY Long Hs Vs As, Wide Premia in Renewables Look Vulnerable

HK Connect SOUTHBOUND Flows (To 29Dec23); CNOOC & Telcos to the BUY Side, Tracker Fund Sold Bigly

SOUTHBOUND flows showing momentum tendencies this past week on a single-stock basis. Hs up vs As quite strongly. Liquid Hs even better.
SOUTHBOUND saw HK$1.2bn of net IN-flows in the 3-day week to 29 Dec. Total flows were HK$88bn.
Bullish end to year for SOUTHBOUND owners but they did not mark the close. They were, however, big buyers of high-div SOEs.

Last Week in Event SPACE: Fujitsu General, Swire Pacific, Li Ning, IJJT

The BIG Risk is that Fujitsu Ltd (6702 JP) sells its stake in Fujitsu General (6755 JP) to someone in a below-market tender offer.
Swire Pacific (A) (19 HK) may still see more outperformance from its latest buyback. But it’s up ~29% since the company announced it was buying both the As and Bs.
Li Ning (2331 HK)‘s shares continue to edge up after its founder recently increased its stake.

Mainland Connect NORTHBOUND Flows (To 29 Dec 23): Renewables Are a BIG NET BUY This Week

The Quiddity Mainland Connect NORTHBOUND Monitor. Like the A/H Premium Monitor and HK Connect SOUTHBOUND Monitor. Lots of Flows/Position Tables and Charts with which to play.
Last week saw NORTHBOUND net BUY RMB 18.7bn of A-shares on stronger average activity. BIG net buying flows on Weds and Thursday.
Looking at the change in the weekly position charts over the last year is striking (easiest in the Sectors table to start). Still.

A/H Premium Tracker (To 29 Dec 23): STAY Long Hs Vs As, Wide Premia in Renewables Look Vulnerable

The New and Better (5mos old) A-H Premium Tracker has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
SOUTHBOUND flows flat/light and NORTHBOUND flows a significant net buy, respectively, but liquid Hs with H/A pairs OUT-perform As on average by 200+bp.
STILL time to go long Hs vs As for the new year. 52wk wide discounts were just last week. Wide A/H premia in renewables space look vulnerable.

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Dec 30

Daily Brief China: PDD Holdings and more

In today’s briefing:

[Blue Lotus Logistics Sector Update]: Overseas E-Commerce Brews New Logistics Players

[Blue Lotus Logistics Sector Update]: Overseas E-Commerce Brews New Logistics Players

By Eric Wen

Ex-China e-commerce conducted by Chinese e-commerce platform will rise from 2022 GMV of US$ 61bn to US$ 297bn in 2025, with Pinduoduo, Alibaba, SHEIN and TikTok leading the charge.
These companies, however, are incubating their own last mile partners. The political uncertainty of Chinese e-commerce overseas is hindering development of the industry;
We see J&T as the main beneficiary of Chinese e-commerce overseas, which must eventually undergo an infrastructure upgrade…

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Dec 29

Daily Brief China: Swire Pacific (A), Li Ning and more

In today’s briefing:

StubWorld: Swire Pac Trading “Rich” As Props Announces Big Write-Down
HK CEO & Director Dealings (29 Dec 2023): Li Ning, Meitu

StubWorld: Swire Pac Trading “Rich” As Props Announces Big Write-Down

Swire Pacific (19 HK)‘s NAV discount has narrowed, and implied stub widened, after announcing its latest buyback. Separately, Swire Properties (1972 HK) flagged a HK$4.5bn writedown on its investment property.
Preceding my comments on Swire are the current setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

HK CEO & Director Dealings (29 Dec 2023): Li Ning, Meitu

The data in this insight is collated from the “shareholding disclosure” link on the HKEx website
Often there is a corresponding HKEx announcement on the increase – or decrease – in the shareholding by directors. Or pledging. However, such disclosures are by no means an absolute.
The key stocks mentioned in this regular insight is Li Ning (2331 HK) and Meitu Inc (1357 HK).

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Dec 28

Daily Brief China: Shenzhou Intl Group Holdings, Sinopharm Group Co Ltd H and more

In today’s briefing:

Shenzhou Intl (2313 HK): Nike Guidance Cut Presents An Opportunity
Sinopharm Group (1099.HK) – Performance Pressure May Continue Until 2024H1

Shenzhou Intl (2313 HK): Nike Guidance Cut Presents An Opportunity

By Steve Zhou, CFA

Nike (NKE US) reported 2QFY24 results last week with a guidance cut, as the company cut FY24 full-year sales guidance to around +1%, compared to +mid-single-digit in the previous guidance.
Shenzhou Intl Group Holdings (2313 HK) saw its stock drop by 8% the following day, given that Nike is Shenzhou’s most important customer, making up 30% of Shenzhou’s sales.
Nike’s inventory is down another 14% yoy, and down high-single-digit compared to the previous quarter 1QFY24.

Sinopharm Group (1099.HK) – Performance Pressure May Continue Until 2024H1

By Xinyao (Criss) Wang

Sinopharm’s 23Q1-Q3 results were below expectations. The main reason for weak performance was due to the anti-corruption campaign, which led to profound and rapid changes in fundamentals and policy end.
In Q4, the impact of anti-corruption would weaken and traditional distribution business would recover.So, 23Q4 performance should be better than Q3, but 23H2 performance would still be worse than 23H1.
We lowered our forecast for 2023 – Revenue and net profit could achieve single-digit growth. Due to the high base in 23H1, growth in 24H1 could still be under pressure.

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Dec 27

Daily Brief China: Air China Ltd (H), Hang Seng Index, Concord Healthcare Group and more

In today’s briefing:

2024 High Conviction: Air China (753 HK) – Update on Proposed Share Placement
EQD | The LONG Case for the Hang Seng Index
Pre-IPO Concord Healthcare Group (PHIP Updates) – Some Points Worth the Attention

2024 High Conviction: Air China (753 HK) – Update on Proposed Share Placement

By Osbert Tang, CFA

Air China (H) (753 HK) is proposing a new share placement to raise Rmb6bn and HK$2bn. EPS dilution is manageable at 6% so we view the proposal positively.
The new equity will enhance book value by 11.5% and lower its gearing by 103pp to 399.8%. The full subscription by the parent is also a vote of confidence.
Recent share price weakness is due to the overall weakness in the Chinese equity market, but both macro and operating environments are improving. Selldown is unjustified.

EQD | The LONG Case for the Hang Seng Index

By Nico Rosti

The HSI INDEX closed last week down (CC=-1) at 16340.41, it is now down 5 months in a row (CC=-5), very OVERSOLD.
If this week the index keeps going down, it may find support soon and bounce next week. The alternative scenario is a longer correction, 2 weeks.
Support for a LONG trade, possibly pushed by a MONTHLY reversal, should be found between 16200 and 15950: this is a highly speculative setup given the stubborn downtrend.

Pre-IPO Concord Healthcare Group (PHIP Updates) – Some Points Worth the Attention

By Xinyao (Criss) Wang

Concord’s financial performance seems improving on the surface,but a closer look reveals that the sudden explosive revenue increase in 2021 was mainly due to an acquisition, with potential risks behind.
We’ve doubts about Concord’s endogenous growth capability. If Concord’s hospitals cannot make a profit, then any further expansion is just a beautiful story and cannot bring expected returns to investors.
Concord conducted a total of four rounds of financing, with a valuation of approximately RMB7.2 billion. However, based on our analysis, its valuation could be lower than peers.

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Dec 26

Daily Brief China: Irc Ltd, NetEase , Taste Gourmet, Trip.com, Hangzhou Tigermed Consulting C and more

In today’s briefing:

IRC Limited (1029 HK): A Wide Spread as the Conditional Offer Opens
Tencent/Netease: Netease Tops ’23 League Table with Most Games Approved
23 Dividend Yielding Mid Caps – Report Card For 2023
Monthly Chinese Tourism Tracker | No “Pent-Up Demand”! | Weak YTD Returns, Too | (December 2023)
China Healthcare Weekly (Dec.25) – Stock Picking Strategy, Logic Flaws Behind a Good Story, Tigermed

IRC Limited (1029 HK): A Wide Spread as the Conditional Offer Opens

By Arun George

The Irc Ltd (1029 HK) IFA opines that a mandatory conditional offer from Nikolai Levitskii (Chairman and 30.61% shareholder) at HK$0.118 per share is fair and reasonable.
The offer is open, with the first closing date of 12 January 2024. The offer is conditional on the offeror and concert parties representing more than 50% of voting rights.
While the offer is light, satisfying the minimum acceptance condition is possible. The risk/reward profile is favourable as the upside (25.5% spread) outweighs the downside (5.3% to the undistributed price).

Tencent/Netease: Netease Tops ’23 League Table with Most Games Approved

By Ke Yan, CFA, FRM

China announced game approval for the December batch. The number of games approved has increased compared to recent months.
The pace of China game approval appears to be accelerating, to the same level as pre-tightening.
Netease scored two approvals while Tencent scored one. Netease finished the year with the most games approved.

23 Dividend Yielding Mid Caps – Report Card For 2023

By Sameer Taneja

We compile a report card for dividend-yielding mid-caps that filter out on favorable characteristics of having net cash, decent ROEs, growth, etc.
It’s been a disappointing year in share price performance owing to the negativity surrounding China and soft business performance in some cases, but there have been some bright spots.
We help provide a comprehensive list of our updates on some names and an outlook for 2024. It’s our last insight for 2023, so happy new year everyone!

Monthly Chinese Tourism Tracker | No “Pent-Up Demand”! | Weak YTD Returns, Too | (December 2023)

By Daniel Hellberg

“Pent-Up demand”? No signs of it anywhere in outbound or domestic metrics
Sluggish outbound demand, capacity trajectories continued to lag in November
YTD share performance weak, mirrors disappointing recovery in travel activity

China Healthcare Weekly (Dec.25) – Stock Picking Strategy, Logic Flaws Behind a Good Story, Tigermed

By Xinyao (Criss) Wang

In the Chinese pharmaceutical industry, stock selection strategies can be divided into “defensive” and “offensive”. We need to combine the judgment of the cycle to choose a stock picking strategy.
Domestic innovative pharmaceutical companies have the opportunity to create a high gross-margin incremental market of over RMB1 trillion through successful internationalization, but we pointed out the logical flaw behind.
We analyzed the key points of Hangzhou Tigermed Consulting (3347 HK). It seems insiders don’t have firm confidence in the prospects, so why should investors rush to buy the bottom?

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Dec 25

Daily Brief China: Guangzhou Automobile Group, Tencent, International Housewares Retail and more

In today’s briefing:

A/H Premium Tracker (To 22 Dec 23): Wide Premia Narrow; Narrow Premia Widen. Stay Long Hs Vs As
China Consumption Weekly (25 Dec 2023): Tencent, NetEase, NIO, Xpeng, Alibaba, Meituan, Douyin
International Housewares Retail Company Limited (1373 HK): H1 FY24 Off To a Bad Start

A/H Premium Tracker (To 22 Dec 23): Wide Premia Narrow; Narrow Premia Widen. Stay Long Hs Vs As

The New and Better (5mos old) A-H Premium Tracker has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
SOUTHBOUND and NORTHBOUND flows were both sells, respectively, but liquid Hs with H/A pairs OUT-perform As on average by 100+bp. Liquidation by overseas investors feels finished.
STILL time to go long Hs vs As for the new year at 52wk wide discounts.

China Consumption Weekly (25 Dec 2023): Tencent, NetEase, NIO, Xpeng, Alibaba, Meituan, Douyin

By Ming Lu

Tencent and NetEase’s stock prices plunged after the release of the new law about online game.
China Passenger Car Association expects NEV will grow by 37% for 2023.
NIO got US2.2 billion investment from CYVN Holdings based in Abu Dahbi.

International Housewares Retail Company Limited (1373 HK): H1 FY24 Off To a Bad Start

By Sameer Taneja

H1 FY24 (May-Oct 2023) was off to a sluggish start for the company, with a 4.7%/35% decline in revenue/adjusted NPAT.
The company cited soft demand, loss of business days due to inclement weather, one-offs in relocation or warehouses to efficient locations, and increased staff costs for poor profits.
Post the correction, the stock trades at a trailing PE of 11x and dividend yield of 8%, but we will have to wait further out as business conditions are worse.

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Dec 24

Daily Brief China: Tencent, Contemporary Amperex Technology (CATL) and more

In today’s briefing:

HK Connect SOUTHBOUND Flows (To 22Dec23); CNOOC/Energy To The Buy Side; Tencent Heavily Sold, Again.
Mainland Connect NORTHBOUND Flows (To 22 Dec 23): CATL Is the BIG BUY This Week

HK Connect SOUTHBOUND Flows (To 22Dec23); CNOOC/Energy To The Buy Side; Tencent Heavily Sold, Again.

SOUTHBOUND flows showing reversion tendencies still. Hs up vs As only slightly. Liquid Hs were down vs As.
SOUTHBOUND saw HK$144bn of net INflows on the week to 22 Dec, which was HK$4bn of Tencent net sales and net buying of a bunch of ETFs.
Some banks and energy names were top net inflows as a percentage of ADV. This week was heavy for SOUTHBOUND, quiet for foreigners, next week may be quiet for both.

Mainland Connect NORTHBOUND Flows (To 22 Dec 23): CATL Is the BIG BUY This Week